As Britain steps aside, EU states to negotiate joint defense fund

BRUSSELS (Reuters) - EU states aim to pool public money into a
fund to help pay for joint military projects, a senior EU
official said on Thursday, in potentially one of the most
significant steps to underpin an emerging European defense union.

The fund would form part of Franco-German efforts to develop a
more integrated European defense to respond to threats on
Europe's borders, as security becomes a unifying issue for the
European Union after Britain's decision to leave the bloc.

Nineteen countries including France, Germany, Italy and Spain
will start talks next month on the so-called Cooperative
Financial Mechanism, or CFM, which could be running sometime next
year, said the official, who briefed EU defense ministers
gathered in Brussels on Thursday.

Britain had long blocked EU defense integration, fearing the
development of an EU army.

The fund, whose monies would be owned by national governments,
would be the third part of a financing plan involving a proposed
research facility led by the European Commission, the EU
executive, and money from the EU's common budget for defense.

The amount of money in the fund has yet to be set and
contributions would be voluntary, the official said, but it would
allow countries to borrow from it as long as they repaid at a
later date. The Commission could also pay into the fund.

"This is about liquidity. Too often, projects cannot get off the
ground or are delayed because countries don't have the money
available," the official said. "This would ring-fence funds
especially for defense."

The steps, if agreed, would mark the biggest EU defense funding
and research plan in more than a decade to reverse billions in
cuts and send a message to U.S. President-elect Donald Trump that
Europe wants to pay for its own security.

EU defense ministers on Thursday discussed the wider defense plan
that EU leaders will discuss in June to deploy Europe's troops to
crisis areas or as peace-keepers abroad.

Proponents of the plan hope that new French President Emmanuel
Macron's strong European support will end the isolated way in
which EU militaries work and avoid any duplication with the
U.S.-led North Atlantic Treaty Organisation.

Defense research spending by EU governments has fallen by a third
since 2006, leaving the EU reliant on the United States for
advanced fighting equipment.

Trump, who will meet EU leaders next week at a NATO summit in
Brussels, unnerved European allies during his election campaign
by questioning whether the United States should protect those who
spend too little on their defense.

Separately, the European Commission will propose in early June up
to 400 million euros ($444 million) from the bloc's joint budget
until 2020 to develop new European military equipment and
weapons, a second senior EU official said.

A pilot plan is set to get under way this year and the Commission
could potentially allocate 3.5 billion euros from the budget
between 2021 and 2027.

The official said at least three EU states would have to propose
a project together to apply for money from the EU budget, with
one potential candidate being a European drone.

"This is the first time in the 60 years of EU history we are
allocating common funds to defense," the official said.

(Additional reporting by Gabriela Baczynska)

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